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No Tuition, Now What?

OCEAN CITY — You’ve looked forward to this day for as long as you can remember. Your child (or the youngest of your children) is graduating from college. Your next financial steps can make a real difference in your retirement.

Now it’s time to focus on your next major financial goal: retirement. If you’re fortunate enough to have a time horizon of 10 to 20 years, the steps you take today can make a significant difference in the size of your nest egg and create a sense of financial security. Here are four things you can do to help ensure a smooth transition from one financial goal to another.

1. Tackle your debts: It’s tempting to take the money you’re not spending on college and indulge yourself, but the sense of financial freedom you can feel when you eliminate debt can be more rewarding. If you’re like most parents, you have taken out loans or tapped the equity in your home to help pay for college. Make it a priority to pay off this debt as soon as you can.

2. Ratchet up your retirement savings: Take advantage of every opportunity to contribute to a tax-advantaged retirement plan. If you participate in a workplace 401(k) plan, aim to contribute the maximum amount ($16,500 in 2011). After age 50, you may be eligible to contribute even more through “catch-up” contributions (up to $5,500 in 2011). And even if you’re contributing the maximum to your 401(k), both you and your spouse are eligible to contribute to an IRA.

3. Rethink your lifestyle: When the nest is empty, it’s time to take a good look at the nest itself. Does it make sense to downsize your home? Say goodbye to the neighborhood you’ve known for years? Move to another state — where living costs may be lower? If you downsize, you may be able to eliminate your mortgage payment, or tap some of the equity in your home for income in retirement.

4. Review your financial plan: As with any new life stage, it’s important to use the opportunity to review your financial plan. Start with a fresh look at how your investments are allocated. Depending on where you are on the road to retirement, it may be time to start reducing your exposure to more volatile assets — or reallocating to assets with the potential to provide retirement income. Start thinking about consolidating your financial accounts with an eye toward simplification. And revisit your estate plan, including your beneficiary forms, to make sure that everything is up to date.

The transition from being a parent with children in college to an empty-nester with an eye on the future offers the potential for a variety of emotions: nostalgia, relief, satisfaction and excitement. Take time to savor your family’s achievements. Visualize the retirement you hope for. Then get started with a plan.

(A Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)